Shaun McEwan - Interim CEO Stephen Thompson - Interim CFO

Todd Coupland - CIBC

Good morning, everyone, and thank you for joining us today on the first Quarterhill financial results conference call. The big news for us this quarter was the launch of a major shift in our goal strategy.

The completion of two acquisitions, and the name change and the overall branding for the public company. I’m going to start the call this morning with a quick look at our financial highlights, and then spend a few minutes reviewing our new strategy and discussing some of the related operational highlights from the quarter.

Steve will take a detailed look at the numbers and how the new structure of our company will be reflected in the presentation of our financials going forward. Q2 revenue was $18.6 million, adjusted EBITDA was $4.8 million and cash generated from operations was $3.1 million.

These results include the full period of contribution from WiLAN, approximately two months of contribution from VIZIYA and approximately one month of contribution from IRD. On a pro forma basis assuming that we had acquired IRD and VIZIYA at the very beginning of the quarter, the revenues for Quarterhill for Q2 would have been $23.8 million.

Cash and equivalents and short-term investments on our balance sheet ended the quarter at $49 million and that does reflect the two acquisitions that we've made in the quarter. To summarize, our renewed strategy is based on building a diversified investment holding firm focused on acquiring companies in the industrial Internet of Things or an industrial IoT market.

As we said previously, the strategy reflects the belief of the Board and Management for the best path to grow the business and shareholder value is to acquire promising growth companies and support them while we continue to build their businesses. The diversification strategy will see us adding additional lines of business for an overall public company in order to open up new revenue and cash flow streams and mitigate the lumpiness and financial performance that can be experienced in the [indiscernible].

The industrial IoT is a broad and rapidly growing market and we will focus on selected verticals mainly technology, mobility, factory and city. The key of course is identifying acquiring and nurturing those businesses that have positioned to capitalize on the industrial IoT opportunity.

In addition to the target verticals of that time, we are looking for businesses that have a broad range of products and services focused on capturing, analyzing and interrupting data and then you can turn that data into action oriented information but also public and private sector enterprises, gained significant efficiencies in their operations. We are also looking for companies that have demonstrated history of growing sustainable cash flow, are capable in experience, growth oriented management team.

This is moving our market share in the business areas with strong customer relationships. A sustainable competitive advantage and the ability to grow organically through additional acquisitions.

To that end, we made two significant acquisitions in Q2 and a small tuck-in acquisition first quarter end. We've revolve these acquisition meet our investment criteria.

Now I'll take a few minutes and outline each one of them now. In April as you may recall, we announced our intention to acquire Saskatoon based International Road Dynamics Inc.

or IRD which at the time was a publicly traded company. IRD is an industrial IoT company specializing in intelligent transportation systems.

IRD combines integrated hardware and software solutions to detect vehicles, major characteristics of use and analyze traffic data. These solutions help the agencies protect infrastructure, enhance safety and optimize highway design, which we were all factors that are becoming increasingly important given growing traffic volumes.

IRD has customers around the world and today their systems are collecting data from approximately 68,000 lanes of traffic. Over time having proprietary access to this data for a variety of applications will enable IRD to offer new services to new clients.

For example, you may be able to identify safety concerns regarding certain companies. And we can use this same data to provide analysis to insurance companies.

To us this is the essence of the industrial market IoT market. The acquisitions of IRD closed on June 1.

Already from closing we have completed a tuck-in acquisition for IRD, Belgium's iCOMS Detections S.A. This acquisition will help IRD to expand their geographic footprint in Europe and will create new revenue opportunities with the acquired radar-based products and services that cannot be offered to our entities North American and other global customer.

Also subsequent to quarter end, IRD announced a new $5 million contract with the British Columbia Ministry of Transportation and Infrastructure to provide maintenance and technical support services for the provinces weighted OBC program. The second acquisition made in Q2 is for privately held VIZIYA Corp.

which is announced on May 4. VIZIYA is based in Hamilton, Ontario and has offices around the world.

Like IRD, they have a global footprint with more than 55,000 users at 850 sites. Now their sizeable component of their revenues coming from a recurring revenue model, where software maintenance or software of service.

VIZIYA's asset management software helps its customers which include the likes of Chevron, U.S. Steel, Alcoa, Barrick Gold and Land O' Lakes, optimize land asset performance and uptime allowing them to more effectively achieve their production targets, control costs, manage safety and compliance.

Increasingly these asset management systems are part of a broader industrial IoT ecosystem which represents a significant growth opportunity for VIZIYA. This systems enable organizations to build intelligent connected equipment that monitors itself and constantly captures data to measure damage, wear-and-tear and other operational indicators.

With significantly more data obtained on a real-time basis, operational systems can now move beyond preventative maintenance to more predictive maintenance using our analytics. While much has been said here at IRD and VIZIYA, it is important to note that WiLAN remains a key part of Quarterhill's investment portfolio.

We expect WiLAN to remain a world leader in patent licensing. In Q2, WiLAN generated license agreements with Ericsson and Amazon among others and continues to maintain a large pipeline of opportunities in multiple geographies.

WiLAN will continue to acquire portfolios and expand its partner program and will invest prudently where appropriate returns can be met. Both the IRD and VIZIYA acquisitions remain with cash on hand and therefore are immediately accretive to adjusted EBITDA.

These acquisitions cost us $66.3 million cash at the outset and there is some contingent consideration amount related to VIZIYA acquisition that could see that total purchase price increase by approximately $12 million. If cumulative EBITDA contributed by VIZIYA over the next 2.5 years, it seems at least $12 million.

Steve will discuss some of the deal related cost and accounting features in his section. Coincident with the closing of the IRD acquisition on June 1, we also changed the name of the public entity to Quarterhill and created a new corporate structure.

Each of our investments, WiLAN, IRD and VIZIYA are now wholly-owned subsidiary. All the intellectual property licensing assets are part of WiLAN and so what remain in Quarterhill is strictly some cash, investments in new subsidiaries, some tax losses and a small operating staff.

We continue to build a pipeline of acquisition targets and see no real shortage of deal flow. We are looking for transactions that meet the criteria as I outlined here on the call and what we believe can generate an internal rate of return of more than 20% over a five year plus time horizon.

In closing, we are excited with the growth and value creation potential of our new strategy. With these acquisitions completed and our three acquisitions completed in another four months, we are off to a very busy start and we look forward to building on the promising portfolio investments in the coming quarters.

With that, I’d like to pass it over to Steve to look at the financials in little more detail. Steve?

Thanks Shaun, good morning everyone. I'd like to start about some of the changes that have been to the presentation of our financial based on our new strategy focused and the acquisition of IRD and VIZIYA.

Starting with revenue, we are now breaking out revenue and cost of revenue by type; licenses, systems, services and recurring. Licenses as you would expect to include WiLAN's traditional patent licensing, as well as software license revenue.

For the current period this would include only the factory segment. System's revenues include revenues earned on contracted projects recognized on a percentage of completion basis as well as OEM and proprietary product sales.

Services revenue related to professional services type revenue. Recurring revenue include maintenance, software as a service revenue and data analytics revenue.

This revenue tends to come from contract range in term from one to five years. More detailed descriptions of these types can be found in our MD&A.

We’re also segmenting our results by our industrial IoT target markets. As Shaun mentioned the target of vertical are technology, mobility, factory and city.

Today we have investments in three of these verticals technology, WiLAN mobility, IRD and factory VIZIYA. Full segmented results on each vertical can also be found in our MD&A.

For the purposes of today's call, I'll focus on highlights from each one, as well on the consolidated highlights for Quarterhill. As Shaun mentioned, our consolidated revenue and adjusted EBITDA in Q2 were $18.6 million and $4.8 million respectively.

Our technology vertical generated $12 million in revenue and $3.9 million in adjusted EBITDA. This vertical benefited from several new licensing agreements including those with Amazon and Ericsson.

Our mobility vertical generated $4.6 million in revenue Q2 and $810,000 in adjusted EBITDA this vertical is made up of the IRD operation. Therefore since the acquisition closed on June 1, this reflects one month of IRD’s operation.

Revenue in the factory vertical was $1.9 million with adjusted EBITDA of $520,000. This vertical is made up of the VIZIYA operation.

Therefore since the acquisition closed on May 4, this reflects two months of VIZIYA’s operations. Previously we reported that EBITDA as a key metric WiLAN.

Now we are reporting adjusted EBITDA significant adjustments include income taxes, foreign exchange, finance expense and income, as well as depreciation and amortization of intangible which included existing intangibles from the technology segment and acquired intangibles from the new acquisitions. The company also adjust for special charges related directly to the acquisition and subsequent internal reorganization, along with the effects of deleted deferred revenue and increased costs from inventory step up that again rose from accounting for these acquisitions.

The MD&A provides a complete reconciliation of all components of the adjusted EBITDA measurement. Quarterhill’s consolidated net income was $3.6 million or $0.03 per basic common share included in our bottom line is $1.3 million of transaction related costs offsetted by our $425,400 foreign exchange gain and $6.2 million income tax recovery related primarily to net impact to deferred taxes and associated liabilities resulting from our reorganization and our acquisitions.

Cash generation generated from our operations was $3.1 million in Q2 and we paid $1.1 million in dividend. On that note with today's release the Board has declared a dividend of CAD1.25 per share payable on October 5 to shareholders of record on September 15.

On the balance sheet, cash and cash equivalents and short-term investments totaled $49 million at quarter. This cash position reflects the two acquisitions made in the quarter and will continue to serve as a source of funds for future acquisitions.

This concludes my review with the financial results and I'll now turn the call back to the operator for questions.

I wanted to see if I could get you true up pro forma EBITDA as well for the quarter, you called out the revenue of 23.8 what would the EBITDA have been?

That's good question Todd I don’t have the answer right at my fingertips. So I apologize.

Is it fair to say that whether it's IRD or VIZIYA, can we run rate their contributions in off the segment and results?

Talking of VIZIYA is probably more accurate to run rate that. It’s kind of two months.

The challenge with IRD is the business tends to be a little bit more seasonal in that the May to September, October window. They have had quite better performing and slightly better revenue.

So I would caution that one month doesn't really make a full trend. So I would straight up annualize that.

And consider the seasonality is probably a little better in this quarter than it might otherwise be the over the long run.

I mean, that was my observation. It seemed like, if I had to run that out, that’s materially higher than I guess what I would’ve expected even next year in that business.

So has there been any sort of material change in I guess the opportunities for that business in '18?

Again one month end in right, the reality is I think it’s still meeting our expectation and we’re still quite happy and excited about it. But there hasn’t been any material changes yet.

I mean, I think at the time of the acquisition, it was sort of running at 5 million or 6 million EBITDA, and obviously this one month would put rate much higher than that. Were those numbers a little bit conservative in terms of IRD, looking out a year?

Again, we are not trying to get into the guidance. I think those numbers were fairly accurate, I don’t think they were - they certainly weren’t aggressive, but I don’t know if they were terribly conservative.

Did those EBITDA numbers reflects sort of first synergies if you will duplicate costs et cetera, or is there some things to be realized in the coming quarters?

I still think there’s some things to come, realize in the coming quarters. Again, with one month of operations, you don’t realize a lot of synergies right out of the gate.

So it’ll take some time to work through those.

And then just lastly, could you characterize the IP pipeline? You had a nice bounce back in Q2 after Q1 was pretty late on the licensing side.

What is the look like for the second half of the year?

We’re still very positive, frankly. I think we’ve said this on many calls in the past that when WiLAN doesn’t sign the license in a particular quarter, it never loses that opportunity, it just kind of pushes out.

So to the extent that the Q1 was light and Q2 bounced a bit, we’re still looking for some decent performance in the last half of the year as well. I don't think the fundamentals have changed at all.

And are there any key milestones for either court dates or other timelines in the second half of the year for the various patent programs?

I think WiLAN has got more than 60 consistently, but if I look at the actual part, it’s significantly more than 60 litigations ongoing. There’s always all kinds of activity happening.

I don’t know if any one of them has a particular milestone or significant issue. I think there’s a lots of WiLAN's in the fire, and the team is working diligently to close as many of those as quickly as they can.

Okay. Those were all the questions I had.

I’ll make one comment. I thought the segmented disclosure on the three businesses was a good place to start and very helpful.

So I appreciate that extra color. Thanks very much.